Free Family Finance

First & foremost, if you live in a apartment or rental property of any type, you need renter’s insurance. Why? Well, you know that 400 pound man that lives above you? The one that stomps around in the size 15, steel-toed work boots at 3am. The one that plays fetch with his 3 german shepherds inside the apartment and every time he throws the ball, a stampede of footsteps runs from one side of your ceiling to the other (and back again). Well, what if he is cooking meth in his bathroom? Or has an extensive candle-burning shrine to Scott Baio? What if he decides that he can fix his own washer & dryer or doesn’t know the rule about throwing water on a grease fire? The possibilities are endless.

“Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.”
-Albert Einstein

All of this is to say, you need renter’s insurance. There is no magic to it. How much would it cost to replace all of your crap? That is how much coverage you need. Go talk to your insurance guy and have it added. It is pretty inexpensive – roughly $150/year will cover $20,000 of your stuff. Well worth it. If you are reading this and thinking about how little you have to insure, think again. Go home and stop. Look around your apartment. Sure your furniture might be a little crappy, but if your pad burned down, you would still need a place to sit & play X-box. Speaking of X-box, it would be gone too. You would still need to replace your guitar or that closet full of clothes. I don’t know a person in American that doesn’t have $150 bucks worth of clothes in their closet and it is unlikely that you would be wearing them all the day your apartment explodes. All things considered, you probably need the protection.

The one nuance you need to be aware of, as it relates to insurance…you need to have a record of the stuff you are insuring. Just like insuring your car, when you have to show them the title, proving that you own your ride. Renter’s insurance is the same way, as is home insurance for that matter. You must prove that there were things in the apartment that need replacing and what those things were.

In this digital age that we live in, it couldn’t be easier. Just snap some photos of your rooms, closets, etc. Make sure your important stuff is in the photos. If you really want to cover yourself, maybe pull the receipts from some of your big ticket items and scan them on the computer. This way you have proof of ownership and proof of replacement cost, if something were to happen. This extra step would certainly grease the wheel of your claim, were lightning to strike (figuratively or literally). Just make sure you save those files on a computer away from home. Or maybe upload them on your MobileMe account, so that they are stored in the virtual heavens.

If you are not already, make sure you get yourself covered. Soon. Before Johnny Lead-foot upstairs decides to deep fry his Thanksgiving turkey in his living room.

Despite popular belief, 401(k) is not the classified name of a top-secret government agent. I know, that’s shocking. However, a 401(k) is a powerful retirement tool – and a tool you ought to know about.

The name itself, “401(k)” refers to IRS tax code. Note: tax code is a safer alternative to common sleep aid – LunaSom PM. Fundamentally, a 401(k) is a glorified mutual fund. In a practical sense, it is money in a mutual fund, stamped with a “for retirement only” tag. There is, however, an advantage to tagging the money.

Whether you realize it or not, as you work the government takes roughly 30% of every dollar you make, before it is paid to you. They also make your employer pay an additional 30% of every dollar they pay you. You know all those small, confusing numbers that come on your check stub at work – supposedly they tell you all about the 30% tax. Supposedly. But don’t worry, all of this money goes toward necessary, responsible spending. I digress.

A 401(k) account works like this…

1. You earn money through an employer who offers a 401(k) plan.
2. You choose to put a percentage of that money into the 401(k) account. Within the account, the money is invested in your choice of a limited list of mutual funds.
3. You defer the payment of the 30% tax on the money you put into 401(k).
4. Typically, your employer matches some portion of your contribution (ex. they match 100 of your investment, up to 4% of your salary)
5. That money is locked into the 401(k) until you reach age 59 1/2.
6. At age 59 1/2 and beyond, you can begin to withdraw money from the account, paying the taxes you deferred in Step 3 as though the money you withdraw is income.

Why is this so helpful? Not only are you saving for retirement, which is almost always a great idea, but you are gaining a 100% return on the money your employer matches. Doubling your money is always a good investment.

Say a 25 year old earns $100 at work. He pays 30% in taxes and is left with $70. He invests the money in mutual funds for his retirement. The funds earn him an average of 11% in interest over that time. At age 59 1/2, lets just call it 60, the money has grown to $3,200.

Now, under the same stipulations, the 25 year old instead puts the money into his company’s 401(k) plan. By deferring the taxes & gaining the employer match, $200 is invested. The money grows to $9,200 over the same period of time. You pay taxes on the money as you withdraw it, and you are left $6,400. Thus, you have gained the difference – in this case $3,200. If the 25 year old continues to invest additional monies over the course of a career, you are talking big bucks.

Cha-Ching. That’s why 401(k)’s are a powerful retirement tool and an important factor in career choice.

Recently in California (no comment) we have people standing in line to withdraw their money after a bank went under. It is reminiscent of the Great Depression. Shouldn’t people get worried? Not hardly. The important thing to remember in times like this is that financial decisions based on fear are never good ones. The bank (as all reputable banks) was FDIC insured. Which means, ALL members are guaranteed up $100,000 by the US government in the event of a bankruptcy. The funniest (or saddest) part of the story is that people stood in line for hours and some even stayed overnight to get their money. Banks are only required to keep 10% of their total assets in liquid form at a given bank. Therefore, even if the bank wasn’t in financial trouble, it could not pay out money to everyone in line. So standing in line to get your money from a recently bankrupted bank doesn’t make you look smart and savvy, it makes you look like a moron. You will get your money (eventually), and if you have more than 100,000 dollars sitting in your checking account you are a moron for other reasons. The point of this story isn’t to make fun of people from California (they’re too easy targets anyway), but rather to encourage you to never make financial decisions based on fear. When you have a clear head, you make better decisions. When scared, you act rashly.